BECU Refis Manufactured Homes on Leased Land in Community-Building Effort

EVERETT, Wash. - With median home prices in the Seattle area above $300,000, you'd wonder why a credit union with $5.4 billion in assets would bother making mortgages to people who have lived in a trailer park. But last October, when no other financial institution was willing to do it, BECU presented a proposal from the Housing Authority of Snohomish County, Washington to refinance mortgages for residents of Thomas Place, a manufactured home community. The history of Thomas Place began in 1998, when residents of a run-down trailer park were being displaced because the owner couldn't afford to make the necessary repairs. "It needed plumbing, sewers - quite a bit of money needed to go into it," said Todd Pietzsch, manager of public relations. "Plus, there were drugs and crime. It wasn't the best place to be." Local government officials worked with the county housing authority to make the necessary repairs. They also replaced the trailers with brand-new manufactured homes. The trailer park was transformed into Thomas Place, a mixed income, award-winning community. All's well that ends well, right? Wrong. Because the housing authority owns the land, financial institutions weren't interested in providing traditional 30-year fixed loans with competitive rates normally reserved for "stick built" homes, which are on owner-occupied land. The housing authority found a short-term solution in the sale of bonds, financing the mortgages within the agency at a 7% rate. Such a deal was competitive in 1998, but not so much in 2004. Not only were residents unable to refinance their homes with a financial institution, they were unable to sell their homes because new buyers were unable to get financing, Pietzsch said. That's where BECU stepped in. Because the credit union retains all mortgage loans in their portfolio, the institution was able to develop underwriting specific to Thomas Place properties. "The housing authority gives us a lien on the home like a car - because the homeowners don't own the land, we needed that," Pietzsch explained. "So even though it's leased land, we still have a first security interest in the home itself. Technically, if they abandoned the home, we could turn around and sell it." The housing authority went a step further to minimize the credit union's risk, guaranteeing all mortgage loans from Thomas Place. "Jointly, we worked out what would be acceptable risk for both parties - the underwriting, the home values, the whole picture," said Lori McIntosh, Affordable Housing and Emerging Markets Manager. "And, if the loan goes into default, the housing authority will take over the mortgage." McIntosh added that she has little concern such a thing would happen - not a single home has gone into foreclosure or default since the housing authority took over the property in 1998. So far, BECU has refinanced 15 of Thomas Place's 41 units and has at least three more in the pipeline. The credit union only offers one financing option: a fixed, 30-year traditional mortgage. To get the word out, Boeing worked with the housing authority to conduct neighborhood meetings that informed residents of the option to finance at the credit union. Additionally, a local branch employee was trained to be the community's designated loan representative, to build rapport with residents. Because the mortgages don't include land, closing costs are more affordable than those on traditional mortgages. "There's no deed on the home because the land doesn't go with it," McIntosh said, "so there's no title insurance because there's no deed." Additionally, the mortgages don't require an escrow, recording, or mortgage insurance. "We didn't add any additional fees on to our typical 30-year mortgage; in fact, we've actually been able to reduce fees for these members, which is helpful," Pietzsch said. The homes range in size from one to three bedrooms, and the housing authority estimates their values from $70,000 to $85,000. "When you look at these homes, you wouldn't think of these as being mobile homes," McIntosh said. "It looks like any average community that's out there, and the homes are very nice, so it's an area people would want to move into." Families in Thomas Place range from young families with children, to single professionals, and retirees. The neighborhood is approximately 25 miles north of downtown Seattle, and has recently gained in popularity because home prices in Seattle proper are out of reach for many area residents. The neighborhood is located close to the Boeing Company's famous Everett factory, where the aerospace giant builds 747, 767 and 777 aircraft in the largest building in the world. However, proximity to the credit union's original sponsor was not a factor in the decision to take on the Thomas Place project, McIntosh said. The 404,000-member credit union recently expanded its field of membership to include the entire state of Washington, so Boeing can now undertake community projects without worrying whether or not participants will qualify for membership, she explained. "Just a few years ago, we were really restricted on our field of membership, but when that changed, it allowed us a greater opportunity to knock on the community's door and figure out how we can partner with high-impact non-profit organizations to make things happen," she said. McIntosh added that the credit union plans to offer Thomas Place financing indefinitely, and is planning to launch other community-building projects in the near future. "We want to encourage other credit unions to go out there and find these unique opportunities," McIntosh said. "Research the non-profits in your area, find out what their needs are, and work to develop solutions that make sense for everyone." -